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Why Saudi Arabia's private sector needs to step up

The kingdom’s government is between a rock and a hard place when it comes to funding millions of public sector jobs, says Ed Attwood

By Ed Attwood

Fri 30 Sep 2016 12:26 AM

Last week’s announcement that Saudi ministers would have their salaries slashed and public sector workers would have their bonuses removed may have come as a surprise, but in some senses it was inevitable.

The Saudi public has already been subjected to a series of austerity measures. Fuel subsidies have been curtailed, and the cost of electricity and water – both hugely expensive for the government to produce – has risen significantly. But these are sensitive issues. After a series of mishaps, including some citizens receiving absurdly inflated utilities bills and an ill-advised comment that customers who were unhappy with the new water tariff should dig their own wells (easier said than done if you live in a block of flats), Water and Electricity Minister Abdullah Al Husayen lost his job earlier this year. His successor has been somewhat quieter.

But a decision to pare back on public sector perks is another level of austerity entirely. An estimated two-thirds of employable Saudis are working for the government in one form or another. While salary increases in this sector have been relatively commonplace in other Gulf countries, such as Qatar and the UAE, the same has not been the case in the kingdom. It’s sometimes hard to shake the myth that working in the public sector in the Gulf is effectively a sinecure – a big wage packet for relatively little work. But if this is an incorrect generalisation elsewhere in the Gulf, it’s especially inaccurate in Saudi Arabia, where the majority of public sector workers are not particularly well-paid, and for whom the inability to gain extra pay via overtime, for example, will be tough to stomach.

The Saudi government, of course, is well aware of the sensitivity related to public sector salaries. Back in 2011, as revolutions swept the Arab world, King Salman’s predecessor, King Abdullah, rolled out a huge social welfare package that included two-month bonuses for government workers. At the beginning of last year, when King Salman acceded to the throne, generous disbursements to the population included another two months’ bonus pay for the public sector. In that context, last week’s decision must have been a painful one.

The main reason that all of this is taking place, of course, is the considerable loss in revenues that the kingdom is facing thanks to the oil price. But in reality, no matter whether the price of crude is $50 or $150, no progressive government should ever be forced to pursue a policy in which it routinely provides jobs for two-thirds of its workforce.

Saudi authorities have made efforts, via the Nitaqat initiative and others, to coax the private sector into hiring more nationals. To a certain extent, those efforts are bearing fruit, with slower public sector employment growth in 2014 relative to the private sector. Still, roughly a quarter of a million Saudis are entering the workforce every year, and total public sector unemployment is heading up, not down.

It is an understatement to say that this is not an easy problem to solve. Part of the problem lies in education – only 17 percent of Saudis who graduated in 2014 had engineering or science degrees, as opposed to the 65 percent who finished university with social science or humanities degrees.

But the burden must also lie on the efforts being made by the private sector. Many of the kingdom’s biggest companies have made colossal sums of money on the back of government contracts. Yet only some are giving back. Abdul Latif Jameel’s Bab Rizq Jameel programme is one example of a family giant that has done more than most, while Glowork’s entire business model is based on getting more women into work.

More internships, more training programmes, more scholarships for students taking STEM degrees – there are many ways in which private firms can help. There’s never been a more important time for them to step up.